Apple avoided billions in taxes, says US Senate panel

The technology group allegedly exploited loopholes in US corporate tax code

The US senate investigators have accused Apple of avoiding paying billions of dollars in taxes in the US and international markets by exploiting loopholes in the tax system, a disclosure that has sparked a debate over whether US corporate tax code needs to be overhauled.

The Senate's Permanent Subcommittee on Investigations in its 40-page report alleged that the technology firm through three overseas subsidiaries that do not have tax residency in Ireland, avoided paying taxes on the offshore income.

The investigators, however, said they didn’t find any evidence that the technology group had resorted to anything illegal in an attempt to save taxes.

Carl Levin, chairman of the bi-partisan panel, said: “Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere.”

“This is the definition of a tax loophole, technically something which may be in compliance with the law but violates the spirit of the law,” Levin added.

According to the report, Apple Sales International avoided taxes of $74bn on sales between 2009 and 2012, while Apple Operations International (AOI) didn’t file an income tax return in any country since 2008 despite making profits.

While the Senate panel accused Apple as being one among the America's largest tax avoiders, the tech giant claims that it paid $6bn in federal corporate income tax in fiscal 2012, making it one of the largest taxpayers in the US.

The iPhone maker also argued that shifting part of its R&D costs to Ireland was as per the US laws and said that AOI was created to manage its global flow of funds.

Apple, while agreeing that the subsidiaries did not pay corporate taxes, vehemently denied they were created in order to avoid payment of taxes.

The company also claimed that it pays local taxes on foreign earnings and US taxes on incomes earned at its subsidiaries in Ireland.

Meanwhile, Apple Chief Executive Tim Cook is expected to testify at a hearing on its overseas operations, and is also likely to propose some changes to the US tax law that currently allows firms to retain overseas earnings at its offshore subsidiaries.

John McCain, a subcommittee member, in a statement, said: “A company that found remarkable success by harnessing American ingenuity and the opportunities afforded by the US economy should not be shifting its profits overseas to avoid the payment of US tax, purposefully depriving the American people of revenue.”

Microsoft and HP also faced scrutiny from the Senate investigations panel earlier.